Partners (Number 1, 2008)

Economic Gardening Helps Communities Grow Their Own Jobs

"Economic gardening" is an innovative, entrepreneur-based development strategy that has begun gaining attention nationwide.

Often contrasted with "economic hunting" strategies that aim to recruit development opportunities from outside the community, economic gardening is designed to "grow your own" jobs through entrepreneurial activity within the community.

Economic development plans typically include four key tactics—business recruitment; retention; expansion; and entrepreneurial development. As economic developers in cities and towns across the country compete fiercely to implement policies that are both attractive to industry and promote sustainable job growth, emphasis on entrepreneurship is growing.

Traditional approaches to economic development have focused primarily on the first three development tactics and have relied on tax incentives and other financial benefits to strengthen local economies. Increasingly, urban and rural communities, and even states, are starting to shift their economic development focus to the fourth element—entrepreneurial development.

New perspectives in economic development policy
What is leading to this shift in economic development policy? First, a growing number of communities, particularly smaller cities and rural towns, have realized that investment of their resources in traditional economic development strategies has not produced strong results. Because only a limited number of large economic development projects materialize each year, only a handful of communities will be successful in winning these deals, regardless of the resources they commit.

Policymakers are also starting to question the use of incentives as a primary strategy for economic development because they recognize that large businesses' commitments to states, regions or communities are increasingly fluid. Incentives may not be sufficient to guarantee long-term investment in a community, and communities are concerned that once incentives expire, companies will leave in pursuit of a better deal elsewhere.

Finally, a growing body of research suggests that small and local businesses are important drivers of economic growth in communities. Encouraging the growth of more small businesses may lead to greater job creation than trying to lure one or two large corporations. A research study recently completed by the Federal Reserve Bank of Kansas City found that between 1990 and 2003, companies employing fewer than 20 employees accounted for 79.5 percent of the net new jobs in the U.S.1

Most communities will probably not abandon the traditional economic development approach completely, but many are realizing the need for a more balanced economic development portfolio. As a result, increasing numbers of economic development professionals are looking at how their communities can create an environment that supports entrepreneurs and small business development. Each community needs an economic development plan that leverages their unique strengths. Large cities may be able to compete for global corporations and capital, but smaller communities may find that concentrating on local businesses is more productive.

"Economic gardening is more likely to be effective in communities that already have an established entrepreneurial climate."

Economic gardening takes root
In the wake of this paradigm shift, the concept of economic gardening has begun taking root. The idea was first developed in 1989 by the City of Littleton, Colorado, then struggling with the loss of a major employer. Local officials decided they no longer wanted to tie their economic future to outside corporations; rather they wanted to shift all of their resources to supporting local businesses to develop jobs.

Research by M.I.T.'s David Birch helped fuel the development of economic gardening. He found that small, high-growth companies, also known as "gazelles," were critical for job creation. While major recruiting successes were more likely to capture public attention, it was these smaller companies that were creating the jobs.2

Interest in economic gardening started gaining strength outside Littleton by the late 1990s. Communities are attracted to this approach for several reasons. It requires fewer public resources than traditional economic development strategies and keeps those resources in the community by investing in locally owned businesses. In addition, small businesses are important drivers of job growth, as indicated in the research by Birch and the Kansas City Fed. An economic gardening program can also assist businesses across industry sectors and thereby help communities develop a more diverse economic base. Economic gardening is clearly a strategy that allows local communities to capitalize on their unique assets and to leverage their existing strengths for future growth.

Building an economic gardening program
Economic gardening programs succeed by creating an environment that nurtures entrepreneurs. A number of best practices have evolved from the Littleton program that other communities have replicated, but each community structures their program differently to meet the needs of their intended markets. The public sector plays a much more direct role in assisting local businesses in an economic gardening program than in a traditional economic development plan.

Most economic gardening programs target second-stage companies—not start-ups, but those that are growing and employ 10–99 employees. While this approach can be politically challenging because it excludes some small businesses and entrepreneurs, research suggests that second-stage companies benefit most from the resources and services provided by economic gardening programs and have the greatest potential for job growth as well.3

There are three basic building blocks for an economic gardening program:4

Information: Programs can provide access to competitive intelligence on markets, customers and competitors that has traditionally been available only to large firms. This information might include various business and real estate databases, legislative research, customer information, GIS (geographic information system) and search engine marketing. Local or state government can offer free or low-cost access to this information and provide the technical assistance necessary to use it.

In Littleton, access to market information has become the centerpiece of the economic gardening program. For the majority of small business owners, navigating the vast landscape of business information is daunting, and the information can be very costly to obtain. Access to free or affordable information and consulting services is thus extremely valuable.

Infrastructure: This component addresses the basic physical infrastructure that all cities provide by building and supporting community assets essential to commerce. It includes projects that enhance the overall quality of life in a community, such as parks, open space and historic preservation.

Connections: Entrepreneurs benefit significantly from interaction and exchange among business owners and resource providers, such as trade associations, think tanks, academic institutions, other similar companies and CEOs. Examples of strategies to develop better connectivity include business roundtables, peer-to-peer learning sessions and mentoring programs that partner new business owners with accomplished businesses in their industry.

Local communities have developed their own economic gardening programs to enhance local assets and respond to local needs, but all programs include some variation of these three key elements. Most importantly, these communities remain focused on economic gardening's central theme of growing their own businesses and generating new jobs from within.

Where is economic gardening most effective?
Interest in economic gardening is expanding and it is important to consider the qualities of communities where this strategy is most likely to be effective. Small cities and rural communities have tended to be more receptive to economic gardening because they have often found they cannot afford to compete in a more traditional approach to economic development. Thus, they are looking for alternatives such as an entrepreneur-focused plan like economic gardening.

Economic gardening is also more likely to be effective in communities that already have an established entrepreneurial climate. The entrepreneurial climate includes not only the number of entrepreneurs in the community, but also the level of support for entrepreneurship in the existing business culture. Communities that are conducive to entrepreneurship are more likely to value intellectual stimulation and openness to new ideas. These communities also tend to have supporting infrastructure including universities and access to venture capital. Finally, the communities most supportive of entrepreneurship are committed to an economic development strategy that allows them to control their own economic destiny.

Economic gardening today
Economic gardening is still a very new concept, and research about its effectiveness is limited compared to what we know about traditional economic development strategies. However, preliminary results in communities that have developed economic gardening have been positive. In Littleton, where the program has been operating for over 20 years, employment growth doubled and sales tax revenue tripled between 1990 and 2003. During this same time period the city's population grew by 30 percent.5

The concept of economic gardening is still evolving and more research is needed to evaluate whether it is an effective use of public resources. However, the number of communities and even states exploring economic gardening is growing. This strategy has won national attention from respected economic development agencies, including the Small Business Administration and the Economic Development Administration, along with strong support from several national foundations. These indications suggest that economic gardening is poised for growth.

This article was written by Jessica LeVeen Farr, senior regional community development manager in the Atlanta Fed's Nashville Branch.

The idea of economic gardening is gaining ground in Georgia. Like many other southern states, Georgia has traditionally relied on industry recruitment as the foundation for economic development. However, when Governor Sonny Perdue took office in 2002, he created an entrepreneur-focused initiative to support small businesses across the state. The entrepreneurship initiative in Georgia has evolved into one of the first statewide economic gardening programs.

The Georgia Entrepreneur and Small Business Coordinating Network, created by Governor Perdue in 2004, encourages state and federal agencies to work together to connect entrepreneurs to essential resources. The Geor­gia Department of Economic Development, which is the lead agency for this project, has expanded its mission under Governor Perdue's leadership to include support for entrepreneurship as a critical component of the state's economic development strategy. Georgia has modeled its economic gardening program after the Littleton program, but because it involves a much larger group of stakeholders and extends to a larger geographic region, many modifications were required.

The Georgia economic gardening program targets com­panies with no more than 19 employees and a demonstrated desire for growth. Any small business can seek assistance from the state, but the state's outreach staff targets businesses in strategic growth industries such as energy, life sciences, bio-agriculture, logistics and transportation. The state is particularly interested in working with companies seeking new regional, national or inter­national markets.

Georgia's entrepreneur program embraces the core elements of economic gardening: it provides access to market research, facilitates networking and connections, and develops infrastructure to support entrepreneurs. The centerpiece of the program is the Entrepreneur Friendly Communities initiative, which encourages local communities to create a business environment conducive to entrepreneurs and to include entrepreneurs in their economic development strategies.

Communities that want to receive the entrepreneur-friendly (EF) designation must go through the state's seven-step certification process. Fifty-one communities in the state have received the EF designation thus far, with another 85 to be added by August 2008. Communities that receive the EF designation are eligible for specific state resources, technical assistance and market information.

One aspect of the state's entrepreneurship program, the Georgia Mentor/Protégé project, teams prospering companies with emerging companies. The goal is to help growing companies develop tools and techniques to accelerate their business growth as well as to help them form strategic business alliances.

The environment for entrepreneurs in Georgia is improving. Accord­ing to the Kauffman Foundation Index of Entrepreneurial Activity, Georgia had the third highest rate of entrepreneurial activity in 2006.1 In addition, the growth in the second-stage companies in Georgia has exceeded the national average in recent years.2

Overall, the state's support of entrepreneurial activity seems to signal a shift towards a more balanced economic development portfolio. This changing environment indicates that the statewide economic gardening strategy is well-positioned for success. The Governor's leadership has been critical for the development of this initiative. Its long-term success will require an ongoing commitment from current and future policymakers, as well as from the business community, to the support of local businesses and entrepreneurs.

This article was written by Jessica LeVeen Farr, senior regional community development manager in the Atlanta Fed's Nashville Branch.